On the heels of announcing a mega-deal with Starbucks, mobile payments processing company Square is announcing another piece of key news—specialized, lower pricing per swipe for small businesses. Basically, Square is going to offer small businesses who make less than $250,000 per year the option of either paying the set 2.75 percent per swipe or one fixed price per month, at $275 per month, with no charge per swipe.

So either small businesses can pay the fixed fee, which all merchants pay using Square, or they can pay a monthly fee for any transactions that fall under $250,000 per year. With $250,000 in transactions, paying $275 per month works out to around 1.3 percent per transaction, which is significantly lower than the current rate of 2.75 percent.

If a business goes over $250,000 (and had opted into the monthly swipe fee) then the first dollar after will be charged the standard 2.75 percent rate, and so on. We’re told this new pricing should help a considerable amount of Square’s userbase, which primarily consists of small businesses, local merchants and even contractors. And by industry metrics, 90 percent of small businesses in the U.S. fit into the category of earning less than $250,000 per year.

Square CEO and co-founder Jack Dorsey has been addressing the issue that many businesses have no idea how much they are spending in credit card fees. In a release, he said “For 62 years, merchants have suffered complicated, expensive processing fees. Square is the first company to rethink electronic payment pricing with the merchant in mind. We are giving merchants affordable, predictable pricing…With one monthly price, merchants know that the sales they’ve processed in a day is the same amount deposited in the bank.”

Square’s COO Keith Rabois tells us in an interview that Square has always been thinking about simplifying payments and how the company can remove additional friction and complexity with merhcants accepting credit cards. “Pricing in the payments space is complicated and at the end of the day there is a benefit to knowing what you are going to pay in fees at the end of the month.”

Square says that this is the first time ever that small business has has an advantage over big business with respect to credit card fees pricing.

This isn’t the first small business-friendly move Square has made on behalf of merchants. The company also started making funds available in merchants’ bank accounts the next business morning (for any sales made before 5 pm). Other merchant processors can take 2 to 5 business days to get merchants their money.

Last year, the company dropped its new user limits. Historically, if a new Square user processed more than $1000 in transactions per week, anything above that $1000 will be held for a certain amount of time. This time period ranged from a few hours to as long as a month. How much was help was also a variable amount based on an algorithm that scored merchants. Users had the ability to negotiate and work with Square to raise these limits, but it was on a case by case basis.

Square abolished those limits so all new businesses who use card reader will have funds triggered for processing the same day, the proceeds arriving in the merchants bank accounts the next business day. And you may remember, Square also dropped its $0.15 per transaction charge for businesses a few months ago in early 2011.

Square has been steadily expanding its payments network and reach over the past year. The company now has 2 million people and businesses accepting credit cards with the service (up from 1 million last year), and is processing $6 billion in payments volume per year.

And with a massive deal with Starbucks Square is set to potentially grow even further. Beginning this fall, Square will begin processing all U.S. credit and debit card transactions at participating Starbucks stores across their 7,000 locations. Pay with Square (the company’s loyalty and payments app for consumers) users will be able to find a nearby Starbucks in the Square Directory from their iPhone or Android smartphone.

It’s clear that as competition heats up in the mobile payments world, dropping fees may be the answer to winning merchant hearts, especially small businesses PayPal recently came out with their dongle and payments platform, which charges a flat rate of 2.7 percent per transaction. Square’s move is upping the ante, and will no doubt put pressure on PayPal and others to revisit their rates.

Of course, the choice of whether the monthly fee is cheaper versus the per transaction fee will depend on how much the merchant makes, how many transactions there are in a given month etc.